Control the Costs - Assignment Example

Order 173200 Topic:  Control the Costs Introduction:     This paper seeks to analyze and discuss how to control cost in any form of organization for which I work. The organization that is subject of this paper is a manufacturing company that involves the cost of direct materials, direct labour, overtime cost and other factory overhead cost. This paper posits that in making decisions to control cost there are trade offs that are inevitable but a choice must be made.  2. Analysis and Discussion 2.1. a. In any form of organization for which you work, you are required to analyze the different costs that exist. b. Depending upon the size of the organization, you may base your analysis upon a particular department, branch or even the whole organization. This is at your discretion. c. lf you have difficulty obtaining figures, for confidential reasons, you may still itemize those costs incurred. lf possible, use percentage proportions to express the different costs. The organization that I work is a manufacturing organization where the cost includes the cost of faculties, cost of factory workers, cost of materials and other factory expenses. 2.2. Having completed your analysis, you are required to investigate one way (or more if evident), in which you believe costs could be reduced in order to improve efficiency within your organization. I believe that following costs could be reduced to improve efficiency: cost of raw materials, and direct labour and overtime hours. The cost of raw materials could be reduced if the company will make purchase raw materials for three months requirement instead of the present policy of buying only for one-month requirement. Buying at a bigger volume could be cheaper because of the discount that would be availed and the reduced ordering and set up cost because of making more orders that are frequent The cost of overtime cost, which is being part of the direct labour, could also be improved by avoiding overtime work by employees and instead increasing the wages of these present workers and hiring additional personnel. The present rate for over time work is 150% of regular rate and rendering overtime also increases the cost of other factory head like the increase cost of electricity because of longer time and higher maintenance cost because of longer use of the equipments. 2.3. Investigate the monitoring of costs in one example in our department/organization. ls it successful? Can you suggest any improvements? The monitoring of cost is not successful because of lack of person responsible in controlling cost. What happens in reality is that there is no serious cost control program in the company. I believe that the processes involved in the processing of papers involving payment to suppliers takes too much time before the supplier is paid. The unnecessary hands and papers involved in the processing of payment is eating the valuable time of company officer that should have been involved in making good plans for the company. I suggest that the company will rather invest in computer technology to hasten the process and logically reduced cost while promoting good relationship with suppliers.  2.4. lf your proposal(s) was implemented, describe any problems which you feel may arise. How would you propose to solve these problems?   If my proposal will be implemented, I feel the following problems may arise: a. As to the proposal to purchase raw materials for three months requirement, the consequence would be wider space to place the delivered raw materials that would be used for three months. This will also require the company to spend possibly on insurance of the materials against fire. b. As to the proposal to avoid overtime work by employees and instead increase the wages of these present workers and hiring additional personnel, the problems could be in the complain of the present personnel that this would lower their take home pay. c. As to hastening or streamlining the process in paying the suppliers, by invest in computer technology to hasten the process and logically reduce cost would involve a possible realization of that the company could be having unproductive personnel whose position could be possibly abolished. Solving these problems requires some creativity. For each specific problem that may arise, I will try to make it sure that the corporate objectives are attained. To purchase raw materials for three months requirement that would require spend on insurance of the materials against fire, could be justified through a sound analysis by showing net advantage of purchasing the requirement for three months. This would also prevent the customers from going to other suppliers because of their undelivered orders on time because of lack of materials on time, which had been experienced by the company before. To attain the objective of cost control like the one the budget could be used as one effective tool. Since the budget should prepared before the start of next year’s operation this plan of buying materials in bulk should be properly analysed and presented to management. Businesstown.com (2007) stated that at the beginning of each period, there is a need to identify the amount of money budgeted for each department manager and ask them to create a list of priorities and on each reporting period, there will be a of check the results of their expenditures against the amounts budgeted. This could really be of great help in controlling cost as the department manager’s performance is tied with the result of making the decision that is most favourable to the organization. Businesstown.com (2007) suggested even the possibility of an incentive program for those who come in under budget. Businesstown.com (2007) warned that it is a reality in the corporate world or the world of small business, there is given s human nature to use up all the money in the budget due to the persistent belief to have some piece of equipment to upgrade or replace, or to have some inventory that is hard to source and makes the desire to stockpile. To solve this Businesstown.com (2007) suggested putting a prize on resisting that urge, and not forgetting to explain all the reasoning behind budget decisions. If this plan is part of the budget, the managers of the purchasing department will assure commitment. Removing overtime work by employees and instead increasing the wages of these present workers and hiring additional personnel could cause complaints from present employees because lower take home pay could he solved by offering less time to spend for the company while allowing them to have higher rate. While these employees would possibly have reduced the take home pay, they must also understand that the company need to cost effective if it wants to stay in business because of competition. In addition, they will have time to look for extra income if they want to. Streamlining the process in paying the suppliers, by investing in computer technology could result to abolition of the positions of unproductive personnel, but I believe company will have to retrain said personnel affected the new technology to adapt to the new environment. If these affected employees are really loyal to the company and they are willing to be trained, the company may always find a way where their services could be valuable If they could not adapt to the requirement of the organization, then the company has all right to dismiss said employees. The company needs to survive competition and it has its obligations to its stockholders, which demand performance in terms of profitability and efficiency. 3. Conclusion      To control the costs is not easy as deciding not to spend it. In business, the entrepreneur is expected to use asset and resources and incur liabilities for the business and corresponding expenses and costs are necessary results. However, in so spending cost and expenses, the company expects to earn revenue above these cost and expenses. It is therefore logical that the cost should be used in order to have revenues, hence controlling cost is not easy because it may affect on how the revenues could be increased. In this case controlling the cost of raw materials by purchasing the requirements for three months instead of two months may allow the company to reduced ordering cost and set up cost but it may also increase storage cost. This therefore requires careful analysis because of the trade off. Because of the lost opportunities for lost sales because of lack of materials, purchasing a three-month requirement was a better option to attain the profitability objective. In controlling labour cost, a painful decision to increase the wages of workers while removing the chances for overtime would save the company a great amount of money that may be used for other requirements. To continue with the present practice of processing payment papers is costing the company of wasted time that should have been spent in addressing the more important part of business such as expanding its business base. The same will also promote better relationship with suppliers and could give to the company the chance to terminate services of unproductive personnel if only to put the company on its way to attaining corporate objective that would ensure it short term survival and long-term sustainability. In all these cases, it should be pointed out that business decision making is a continuous trade offs which are not difficult to make. To control costs is one of these decisions to be made and managers always face the risks that decisions could not always be correct but a decision that is based on careful analysis has always a better chance of becoming a success. 4. Reference:  Businesstown.com (2007) Accounting - Purchasing/Cost Control: Using Your Budget to Control Costs, {www document} URL http://www.businesstown.com/accounting/slashing-budget.asp, Accessed June 2, 2007 Read More